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The Death Of The Down Payment Assistance Program??

I am shocked at the posts today on Active Rain. A major shock wave was sent through our industry with the potential to dramatically hurt us all, yet all I see today are the "same old, same old" posts.

Buried in today's overwhelming Senate passing of the Housing Bill was language that will end private down payment assistance programs like Nehemiah and AmeriDream.

Based on the lack of anger and protest coming from here, I will have to assume that not everyone's business is so reliant on FHA today.

This year, at least 50% of my business has been FHA and at least 75% of these loans came with some portion of the down payment being gifted by the seller through a down payment assistance program.

If the House votes for this bill as well, and its certainly not guaranteed they won't, that will be THE END of 100% financing for nearly all of our clients.

"We are extremely disappointed and astonished by the full Senate's decision to ban privately-funded down payment assistance programs through the passage of its Housing Bill. This decision turns a blind eye to the overwhelming success of these programs and their role in helping hundreds of thousands of working families become homeowners," said the CEO of Nehemiah.

100,000's of families take advantage of these programs. Without the availability of this program, the opportunity for home ownership will disappear for many more families. First-time homebuyers and minorities will be most seriously affected. One-third of all FHA loans today have some form of down payment assistance.

According to HUD, borrowers who take advantage of down payment assistance programs are 3 times more likely to go into default than regular loans.

Backed by President Bush, HUD has been trying for over a year now to end these programs, and victory could be near.

A congressman from Texas was quoted last week, before today's vote, as saying, "You'll have enormous pressure from the Realtor and builder communities to not touch this thing."

If you use the silence from Active Rain as an example, apparently not.

There is a lot wrong with the Housing Bill but the worse part was this part of legislation.

If we don't speak up, as an industry, before this Bill hits the floor of the House, we will all likely see, yet another, dramatic decline in business.

UPDATE 7/23/2008: The House passed the Bill today. My understanding is the last day for down payment assistance programs will be September 30, 2008.

Posted by Aaron Gordon, Home Loan Consultant, Las Vegas, NV on 07/11/2008 11:58 PM

Comments (46)

housing bill, fha, down payment assistance

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46 Comments on The Death Of The Down Payment Assistance Program??

JUL

2008

Wow, perhaps the reason you're not hearing an outcry is that people aren't clear about the language that's in the bill.

You are absolutely right Aaron! I'm also surprised that NAR has not reacted yet on this BIG issue! In my local market a huge percentage of sales comes from first time buyers and many of them use the benefit of assistance programs as well.

Hope something gets done soon or our business will continue to suffer.

Aaron,

Interesting week for me. First thing Monday am, mutual acceptance, FHA Nehemiah and guess who is the preapproval lender with DU ... IndyMac BANK.. Noon time Monday, Indymac Blows Up, then today FHA rates blow up, then maybe Nehemiah blows up.... and as of this afternoon at 3:30 the poor Indymac manager says he can still do the loan???

We have gone a second path on lending to make sure one or the other works. What an interesting time to own a real estate business.

List and Sell (and know the lending pitfalls too) Gary @ RentonHomeFinder

Aaron, business cycles run like lemmings - first every lender wants to provide a product that will allow even more people to buy a home. Now they're all over-reacting and not wanting to lend to even good credit risks.

If default rates are three times as high for 100% financing, it probably makes perfectly good sense for lenders not to approve such loans for the time being. That said, government should stay the heck out of it. Private lenders are perfectly capable of making their own decisions about credit criteria. They don't need help from a government that can't manage a balanced budget in forty years.

It's a tough call. Sure we want the business, but statistically it's the high LTV loans that have problems. If people cannot save 3%, it's usually an indication that they have poor spending habits and are not ready to be homeowners. It sounds crazy coming from a mortgage lender, but look around and what has gone on in the aftermath of all of the programs designed to help people that shouldn't really qualify get into homes that they are now losing.

Aaron: I had no idea that this bill would end up killing the Nehemiah program. That is just plain wrong ! That program has helped so many people get into homes that they otherwise could not. And... I think the percentage of loan failures for those loans is very, very small. Thanks for sharing this information.

Christine-- I think you are right but there is nothing else in that bill that affects our industry like this. I am very hopeful the NAR is on this.

Martin-- Me too. With FHA limits higher in all areas today due to the economic stimulus bill, this affects all areas. This works in direct opposite as the economic stimulus bill and will hurt us all.

Gary--- I feel your pain but your DPA should be OK for now...these things take a while. With IndyMac going down and now the news about in insolvency of Fannie/Freddie, no one is safe. The roller coaster ride will continue for a while.

Brian--- I agree 100%. We were too loose and now there has been a dramatic overreaction. This program has been around since 1997 and was created to better assist first timers and minorities. 600,000+ families have been helped.

I am sure there is a compromise better than banning it, ie increased mortgage insurance, higher rates, minimal credit requirements, etc.

Anthony-- There is no question that 100% financing is one of the leading factors in the aftermath that we now all suffer.

However, as you know, as a lender, its the only option available for many, many people.

At a time when the economy sits on the edge of a recession and needs stimulation, eliminating a major group of potential homebuyers contradicts this need.

I agree that people who put down their own money are much stronger borrowers. Without question, they are far more committed to their homes.

However, with gas prices sky-high and many families struggling, now is not the time in our economic history to be reducing the buying power of first time homebuyers, minorities and others who dont have thousands of dollars in savings.

Karen--- Nearly one out of every three FHA loans today uses down payment assistance. You are right. The default rate, even though three times higher is nowhere near the subprime default rates.

Additonally, it is foolish to assume the foreclosures occuring due to the DPA program are not a result of the same irrational buying mentality that happened over the last four years.

We are punishing the present for the sins of the past and, in this case, it could be disasterous to our business and economy.

I did receive a call to action from the local Realtor Association and followed up on it. This is very important in order for people to get into their homes on an entry level basis and I agree that defaults are not because of this specific 100% program

Renee--- This will be especially hurtful in our market. I am hopeful the entire real estate community rallies around this.

For those of us who have not received a call to action from our local association nor a notice from NAR about the situation, what can we do?

And, I've done approx 7 deals with downpayment assistance from these programs. All of the buyers had been either involved in a divorce with no opportunity to 'save 3%' (which we're not just talking 3% here, we're talking closer to 6% with closing costs and such) or they were tenants paying their rents and just wanted to get into a situation where they were paying their own mortgage instead. They had good credit, were able to pay their obligations but just weren't able to save up all that extra dough. That certainly does not mean that they are going to default. Plenty of people of the 'older' generation bought their homes with downpayment assistance from their families. Unfortunately that opportunity has dwindled with the falling apart of the 'old' family network. What is the difference?

I am in somewhat of agreement with you.

I dont think all "Down-Payment Assistance Programs" should be eliminated. State of Florida has several Grant Programs and Bond Programs available to Buyers. These are monies that can be used towards closing costs and not necessarily to be used as the down payment. Let's be REAL, if someone doesn't have the minimum of 3% for a downpayment then they have no business owning a House. Buyers need help but they also have to contribute too, otherwise it is just to easy to walk away.

Kathy Hyatt, Ft. Lauderdale, Florida

JUL

2008

Cyd--- I agree with you. You can go to the Nehemiah website and help. They have information at this link. http://capwiz.com/nehemia/issues/alert/?alertid=11598811

Kathy--- I respectfully disagree with "Let's be REAL, if someone doesn't have the minimum of 3% for a downpayment then they have no business owning a House."

The average American family has negative in savings. The average sales price is around $250,000. This would mean that in order to buy a home you will have to have $7,500 for the down payment and another $5,000 - $7,500 for closing costs.

I can assure you that not many families in Las Vegas, where I live, have $12,000 - $15,000 set aside that they can use to buy a home.

I have done thousands of loans in my career. I could write a book of inspirational stories about borrowers who could not afford one penny down who, I believe, had every right to buy a house and have been successful in making their payments.

I read somewhere that the default rate on these loans is about 2%. That means 98 out of every 100 families who have taken advantage of the program have been successful.

If this ban really happens, bond programs will be the short term answer. We have them here in Nevada as well. But how long will it be before the bond money dries up? And if these homes go into default at the same rate as the other DPA programs do, how long before they are abolished as well??

First time homebuyers traditionally make up about 30% of the marketplace. I know many agents who dont deal with borrowers who have no money to put down. I can assure you from a lending perspective if we lose down payment assistance we will see another 20-30% decline in home sales and that will mean much deeper depreciation in all areas of the country.

Thank you for the link... I had found it last night on another blog discussing the same thing. I passed it on to all of the sales associates at my office.

Here in Florida, our bond program, SHIP runs out of money quickly and is a very long process to go through. As far as people just walking away... it's been my experience, here in my area, that those 'walking away' are NOT your first time home buyers but are your older, experienced speculators/investors that were able to purchase homes under the no money down programs or had homes built by builders offering the $1,000 down to build programs. The other group that walked away were those who thought it was 'bad business' to just keep pouring money into a now over priced home that they purchased in the boom... they did so AFTER purchasing a 2nd home while their credit was still good.

Aaron: hope it doesnt happen...lots of people will be let down

If they actually go thru with banning this program, it is just more proof the the goofs in charge do not know what they are playing with.

Cyd--- Its just another overreaction like we have seen a lot of in the last 12 months

Steve-- I am with you, brother. The House seemed poised to defeat it last week but with the Fannie/Freddie news today, who knows??

Karen--- I just dont get how you vote for the Economic Stimulus Package and then this in the same year?? Its obvious the NAR and Mortgage lobby are not educating our politicians. These work in complete opposite of each other.

maybe I should log in next time I answer my own comments :)

JUL

2008

I was not aware that doing away with down payment assist programs was part of the Housing Bill. Usually, our state association sends emails with calls to action, but I have not received anything about this. These programs are used a lot where I live. We also have Bond programs in our state (Mississippi). I have had many first-time homebuyers use them. All had good credit, just could not save up enough for downpayment & closing costs. If these programs go away, it will really hurt our first-time buyers.

I went to an fha seminar a few months bank and listened to a spokesperson who said that they are doing everything in their power to make sure that any buyer brings at least 3% of their own money to the closing table. They tried to do away with it once and are now taking another approach not giving up. Instead of closing their doors or dramatically changing their guidelines, they've only changed risk priced pmi which is more than fair for this market since fha is the strongest program in today's market. I won't be happy with it either and think that it will hurt the market even more if they do away with it. I actually look at this mortgage crisis as an interest only type of loan . We , the people will pay for this now or later , as a group in taxes because other people have made bad financial decisions . We'll see what happens during the elections, this problem is far from over and more banks will fall before it's over.

mar

Aaron... I am parking, because I am on a deadline for a post to include this one. I am for these DPA's and I will go into more detail.

But the comments that I don't care for is something like the one from Kathy H... she some what agrees, but doesn't think those that don't have 3% of their own money, be able to buy a home? I hate thet stance by some, little to no sweat equity is a bad thing. What about those convetional loans that were approving 100% to 107% financing? Why didn't anyone stand up back then? If it sold a house, nobody seemed to care.

Lastly... and I will be back... the main problem with little to no money down was generally those that were approved with 55% to 60% back end ratios with no money down.

And here is a FYI.... those numbers are misleading, about 1 out 3 3 DPA loans go into foreclosure. People need to do their research and homework. Does anyone know that many of these DPA loans were abused by certain lenders and some buidlers? There was a builder in NC, that had his own lender and used a certain appraiser. The builder supplied the gift through the DPA program, had the lender give a high rate, and the appraiser over appraise the homes... It was condo community.... These don't fair as well in many areas. Well, 80% of the project went into foreclosure. There were reasons, but the parties invilved not only pushed the envelope, but put buyers in there that didn't belong.

You need to understand the numbers before you can pass judgement. Besides, I have not seen one person supply the actual proof to these numbers. It's been hear se... from HUD, to the internet, etc etc... I want to she actual stats? I haven't yet... this is politics people... not everything that you read is true...

jeff belonger

Jeff - you hit the nail on the head ---- b y the way anyone remember the 125% days?

JUL

2008

I would have no problem with a true charity that gives buyers a 3% down payment for a home. But I can't see how you can say that these programs are nothing more than sellers giving buyers money back in order to buy their home.

Why not just make it legal for a seller to give directly to a buyer 3% for the down payment and eliminate the $500 program fee. Why create some sham transaction and make believe we all don't know exactly what's going on? The seller is giving money to the buyer. If that isn't good then funneling it through some nice sounding company isn't good either.

Pam--- There is no question.

Charlie--- Its been clear they want to do away with it. That doesnt hide the fact that its a bad idea. I would be more agreeable if they said we now want a 1.5% down payment or they added more risk based pricing to it, but they havent suggested that yet.

Jeff--- I agree with 100%. However, I dont even think the are saying one in three goes south. What they are saying is that they are three times more likely. I read somewhere that the default rate on these loans is around 2% where the regular ones are at a .7%. As we all know a 2% foreclosure rate is bad but that means 98 out of 100 are doing OK.

In Bernanke's meeting today he said the economic conditions start with the housing market. Enough said. This will make it far worse.

Lewis --- I do. Another real smart loan program. Right up there with the 100% 660 stated income option ARM.

Tim --- I dont disagree with that. I dont know enough about why we need Nehemiah. I am not rallying for them. I believe we need some way to get the buyer in the home for no money down. If not, your area sales and mine will drop 20-30% immediately.

JUL

2008

I agree with Kathy Hyatt and those that believe if someone cannot save 3% for a down payment they are already over their head financially and not capable of owning a home YET. People need to realize that home ownership is not an entitlement right but something to be earned.

The part that is amazing to me is how quickly we are jumping from one side to the other. Whatever happened to intermediary steps and seeing if they work? Nehemiah has been around for 10 years or so, and historically has been a great program that helps good people get into good loans that can't save the down payment. (And I understand the comments of if you can't save 3% you shouldn't be in a home, but really, here in AZ where the average home price is in the $200,000-ish range for something near the city core, that's a lot different than other parts of the country where you're able to buy homes for $75,000-$100,000. Assuming people are able to save $200 per month over and above their budgeted expenses, that's 30 months of savings--2 and 1/2 years more of renting instead of homeownership.)

For instance, why not require people who utilize Nehemiah/Ameridream/DPA to attend a HUD counseling seminar where the counselor goes over a budget with them. Why not create an automatic withdrawal plan where the rate and payment are lower if the payment is withdrawn right from their checking account each month? Why not require two months reserves over a 60 day period (that way it can be a gift, but a long term gift instead of just dumping it in there to qualify for the loan).

Once these or any other incremental ideas are implemented, then we need to WAIT to see what the results are. You can't take a month of time and create public policy based on the results from that month alone. I think the market has done a decent job of recognizing changes and has implemented policies based on each lenders experience. Let the market continue to work with government oversight, not the other way around.

Keith--- As expressed above, I am in complete diasgreement. The cost of this belief will be a 20-30% decline in business. Are you ready for the economic consequences of that? Housing affects many different industries. In effect, you would be eliminating the first time homebuyer market.

Eagle--- You make excellent points and your comments should be its own post. You dont throw away the baby with the bath water.

How about simply making the borrower add at least 1% of his own funds to the 3% gift? It may be tough for some, but that simple contribution will make them more committed and build a bit more equity.

JUL

2008

I sent my objections in to my 2 senators. Democrat Bill Nelson to paraphrase said that there is a higher default rate for people who buy using these programs, so they need to be ended. He just doesn't get it. The low income neighborhoods will end up either being completely blighted or owned by a bunch of landlords.

Rob--- Its great that you started a conversation with your Senator! Here is all of the data on it. You should dissect and send it to him.

http://edocket.access.gpo.gov/2008/08-1356.htm

As you will read. Nearly 4 out of every 10 FHA loans uses a DPA. And even though the default rate is twice as high as when someone makes the down payment themself, you can clearly see a dropoff in this default rate when the credit scores are below 620.

In my opinion they have two choices. Get rid of 40% of their business and destroy the first time and minority home buying market at a time the economy cannot afford it.

Or get rid of the program for borrowers with scores under 620, or at least put in serious risk based pricing below 620 and additional insurance in order to help cover the potential losses from these borrowers.

JUL

2008

I work for a DPA. We are not a sham program. We operate on next to nothing. Working for a non profit program is hard, but I feel a sense of accomplishment when someone gets in a home because of our program. An employee had a friend us our program with no problems. Our fee is minimal at $295.00 for up to 6% of the sales price. It's a good honest program. www.fhap.org

Check it out. The dpa's are needed now more than ever.

Please support DPA's.

thanks!

Check it out. The dpa's are needed now more than ever.

Please support DPA's.

thanks!

I will be honest with you. I am against DPAs. I am against 100% financing.

I don't believe it is financially smart or responsible for anyone to buy a home when they can't even save a small down payment. I don't care if you make it 1%. They should have to learn how to save, budget and buy WITHIN THEIR price range.

The current fiasco was caused by people buying too much house. They never learned debt management, they were trying to keep up with the Joneses and not enough thought was put into them handling their finances down the road.

Does this hurt some agents and brokers, yes, maybe, but we can adjust.

It was irresponsible of us to give these people fish and not teach them how to fish for themselves. Now we all suffer because of it.

Yeah, well, go tell that to a Vet. I'm amazed at what I'm reading here. Absolutely amazed. You actually think that this 'crisis' was caused by people who didn't have money down? Wow.

Advocate - Thanks for the input and keep up the good work.

Cheri--- I think 1% or even the 1.5% that was being talked about is a good alternative. However, 3% is simply too much. The most surprising thing I have learned in the loan business these past years is how little money people have.

3% for down payment and 3% or so for closing costs would impact the real estate business far more than it has already been impacted. You would see an immediate 20-30% decline in business.

Cyd--- Excellent point!!! VA has been offering 100% financing forever with low default rates. It really does show you how "honor" makes a difference in the borrower.

JUL

2008

Aaron,

Efforts to abolish seller funded down payment assistance programs has been ongoing for many years. It appears that it is very close to becoming a reality now.

While I have not been active with these seller funded programs I have been very active in State Mortgage Revenue Bond programs as well as local city and county SHIP (State Housing Initatives Partnership) which are local municipality programs. While Florida is quite active in this area other States may not be. Market conditions and constraints are starting to impact these. LO's wanting to participate in this aspect of service should look into the State and Local programs.

'Cyd--- Excellent point!!! VA has been offering 100% financing forever with low default rates. It really does show you how "honor" makes a difference in the borrower.'

Being a member of the USMC from 1962-1968 I have to agree with Aaron's above reply. VA has provided 100% financing with a low default rate for many years to a specific group who have in essence qualified. Don't forget these guys had a salary of less than $200 a month (Plus food and shelter if you want to include C-rations and tents). Sort of hard to save for a down payment and the program is justified to men who have put their lives on the line. Now trying to make the same benefits available to everyone is a mistake. Sure, some deserving family's will have to wait a little but meanwhile if they can't save ANY money, how will they maintain the expenses of a home?

JUL

2008

Cyd, my ex husband is a Vet, he just bought his 3rd house. He started out as a Peon and he's now like an E-9. He's been in the military for 20 years. My uncles were vets and all homeowners, my grandfathers were vets, all homeowners.

Any vet that isn't a homeowner is not doing something right. Not getting answers where answers exist.

Aaron, people do have little money. No one saves anymore. You have people who make $30,000 a year driving $30,000 cars.

People have to come back to REALITY.

Our parents and grandparents didn't have everything they have now in their 20s. But now 20 year olds expect to have it all right away.

You have people struggling to pay their debts and their kids all have cell phones which to them are a NECESSITY? How did we all survive our childhoods with no cell phones?

My cousin on welfare buys her kids the latest and greatest Playstation every time they come out. In my household growing up we didn't even have a VCR until I was almost 14 years old and my mom was never on welfare!

It's about financial responsibility to me and what is a need versus a want. It's about realism. Having realistic expectations.

Everything is labeled a disease these days so let's call this the Financial disease.

Cheri--- I agree wholeheartedly. We are a nation that runs on debt. We have a goverment that runs on debt. And yet everyone thinks its A-OK.

And thats what makes this decision by Congress even more frustrating. They are punishing Main Street for the sins of Wall Street at the risk of the entire housing market declining further.

I was with a group of agents today discussing this and one said that she felt we should make down payment assistance users (husband and wife if a family) attend a day-long class where they learn the financial responsibilities of homeownership, discuss their debts and income, and truly see if this will work for them.

It may sound silly but its an excellent idea because I would be willing to bet that only about 70% would show up. The other 30% would lose their deals and we would know who is committed and who isnt.

AUG

2008

Steve Harless has a great blog regarding this. Log on and DO SOMETHING *********EVERYONE WHO IS IN FAVOR OF DOWN PAYMENT ASSISTANCE-WE NEED TO MAKE A DIFFERENCE AND ASAP.

If this isn't a featured post, it as well as Steve Harless's blog about this needs to be front page each day on here until that bill goes into effect so we can try to get something done.

OCT

2008

Aaron, I am curious as to what people think now. I have signed every petition I could when people were fighting this and still continuing to try and fix this mistake...so many thought this was a scam that should be done away with.....but now the feed back that I often get is "Isn't there any assistance?" Grants & Bonds are great (when the monies are available) but that doesn't make things better or help out the majority of Qualified borrowers. Qualified in the sense that they can afford the monthly mortgage payment, have a little saved up for the new adjustment of homeownership and still make enough to pay all other bills the just dont havebut the amount needed for the down payment...I think we are and will continue to see "quick fixes" that are a huge mistake and cause more damage in the future unless they just stop! Stop passing things they dont read or dont understand!!!

Dione--- I agree but DPA is dead and gone. It may return in the next administration but probably not because of all of the heat each Party has taken with their role in "Fannie / Freddie."

How in the world can a member of Congress now stand up and vote for 100% financing after the media scrutiny of the last few months??? I just dont see it.

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